Kenya Power’s latest warning of a potential 30% hike in electricity tariffs has sent ripples across Kenya’s business and industrial sectors. The warning comes as the state-owned utility braces for additional financial pressures stemming from proposed wayleave charges by county governments. In a candid disclosure, Kenya Power’s CEO, Joseph Siror, stated that if counties impose the levies, the company would face an additional burden of approximately Sh63.8 billion—equivalent to nearly a third of the utility’s total revenue needs. This financial strain is expected to trigger a tariff review that could have significant consequences for both large consumers and the broader Kenyan economy.

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The Financial Impact of Wayleave Charges

Wayleave charges are fees imposed by local governments for the right to use public land for infrastructure projects. In the case of Kenya Power, these charges are associated with maintaining and expanding its extensive electricity network. With 4,032 kilometers of distribution lines in Nairobi alone—and construction costs averaging Sh200 per meter—the annual wayleave claim for the city totals Sh806.4 million. Although this figure might seem modest in isolation, when scaled across multiple counties and integrated into the utility’s overall financial planning, it represents a significant cost.

CEO Joseph Siror warned, “If this cost is factored into the tariff, we are looking at an increase of over 30% in electricity prices. Consumers are already feeling the strain of high tariffs, and industries will face even greater challenges.” He further explained that the additional financial burden would force Kenya Power to adjust its tariffs upward to cover the shortfall, potentially leading to higher manufacturing costs and a subsequent rise in the prices of consumer commodities.

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Mounting Customer Debt and Its Implications

Adding to the financial challenges is a growing customer debt that has seen a significant rise over the past year. As of March 2025, total customer arrears have reached Sh26.7 billion—a 32.94% increase from the previous year. The debt profile is notably varied:

• Households: The arrears among household consumers have increased from Sh11.1 billion to Sh13.57 billion, marking a 22.22% rise.
• County Governments: The debt owed by county governments has surged by an alarming 85% to Sh4.26 billion.
• National Government Agencies and State Institutions: Their arrears have climbed by 48.06% to Sh3.32 billion.
• Large Power Consumers and Industries: Debts from this segment have increased by 39.06% to Sh1.97 billion.
• Small and Medium Enterprises (SMEs): The arrears in this group have grown by 18.57% to Sh3.58 billion.

A particularly troubling factor is the prolonged period of non-payment, especially among county governments. Siror noted that the age of county debt has extended beyond 210 days—well over the typical 90-day debt cycle observed in other customer segments. This delay in payment exacerbates cash flow challenges and forces Kenya Power to reconsider its pricing strategies to safeguard its operational viability.

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The Paradox of Tariff Adjustments

Despite these looming challenges, Kenya Power has, in recent years, achieved a reduction in the base tariff for consumers. In the 2022-2023 period, the tariff stood at Sh19 per unit, which was subsequently reduced to Sh18.16 per unit in 2024-2025. This reduction was part of a broader effort to make electricity more affordable and stimulate economic activity. However, the potential imposition of wayleave charges may reverse these gains.

“The tariff adjustments are made in accordance with regulations set by the Energy and Petroleum Regulatory Authority (EPRA),” Siror explained. “Several factors influence these tariff reviews, including power generation costs, infrastructure expansion, currency fluctuations, inflation adjustments, and government-imposed taxes and levies. These elements play a crucial role in determining the final electricity price that consumers pay.”

Siror’s comments reflect the inherent tension between keeping electricity affordable for consumers and maintaining a financially sustainable utility that can continue to invest in generation, transmission, and distribution infrastructure. If additional levies are incorporated into the tariff, Kenya Power fears that the resulting price increase could have a cascading effect on the entire economy.

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Impact on Industries and Consumer Prices

A tariff increase of over 30% would have significant repercussions for Kenya’s industrial landscape. Industries that rely on electricity as a primary input—such as manufacturing, agro-processing, and mining—are likely to face higher operating costs. This, in turn, could lead to an increase in the prices of manufactured goods and commodities, affecting both domestic consumers and export competitiveness.

Industry experts warn that higher electricity prices could erode the competitive edge of Kenyan manufacturers. “Electricity is a fundamental input for production. When costs rise sharply, manufacturers may be forced to either absorb the extra expense, reducing profit margins, or pass it on to consumers through higher prices,” said an independent energy analyst. “In either scenario, the overall economic competitiveness of Kenya could be undermined.”

Furthermore, the increased tariffs may have a dampening effect on foreign investment. Investors typically seek stable and predictable operating environments, and sudden spikes in electricity costs could be viewed as a sign of economic instability. Such uncertainty could lead to reduced capital inflows, particularly in energy-intensive sectors, and might slow down the country’s industrial growth at a time when global competition is intensifying.

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The Role of EPRA and Regulatory Oversight

The Energy and Petroleum Regulatory Authority (EPRA) plays a pivotal role in the oversight of electricity tariffs in Kenya. EPRA’s mandate includes ensuring that tariffs are fair, sustainable, and reflective of the costs incurred by utilities like Kenya Power. In recent tariff reviews, EPRA has considered a range of factors—from fuel prices and generation costs to infrastructure investments and currency exchange rates.

However, the current situation is complicated by the potential imposition of wayleave charges. Under the Energy Act, no levies should be imposed on energy infrastructure. Kenya Power’s management argues that should the conversation on these additional fees advance, the financial implications could severely disrupt the industry’s balance sheet. “The Energy Act is clear in its intent to protect energy infrastructure from additional levies. If these charges are enforced, it would not only increase tariffs but also divert funds away from critical investments in generation and transmission,” noted Siror during a recent Senate Energy Committee session.

EPRA’s future decisions will be crucial in determining how the costs of wayleave charges are integrated into the overall tariff structure. Regulators face the difficult task of balancing the need for infrastructure funding with the imperative of keeping electricity affordable for both households and industries.

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Measures to Address the Debt Crisis

In response to the mounting customer debt, Kenya Power has implemented several measures aimed at improving bill collection and reducing arrears. Among these measures is the introduction of an online billing portal, which has streamlined the payment process for many customers. Additionally, the utility has established structured payment schedules and provides a 14-day window for bill payments before initiating follow-ups via phone calls and notices. In cases where bills remain unpaid, disconnection procedures are initiated—but not before critical facilities such as hospitals and street lighting are exempted to prevent disruptions in essential services.

Despite these measures, the debt crisis remains a formidable challenge. With arrears rising across multiple customer segments, Kenya Power is under significant pressure to recover revenues without compromising service delivery. “The rise in arrears, particularly among county governments and large consumers, is concerning. It creates a cash flow problem that affects our ability to invest in network expansion and maintenance,” Siror explained. He added that more robust collection mechanisms and tighter credit controls are urgently needed to stem the tide of non-payment.

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Broader Economic Implications

The potential tariff hike is not merely an isolated issue affecting Kenya Power’s finances; it has far-reaching implications for the entire Kenyan economy. Higher electricity prices will likely translate into increased production costs for manufacturers and service providers. This could lead to a rise in the prices of goods and services across the board—a development that would adversely impact consumer purchasing power and overall economic growth.

Economists have long cautioned that energy costs are a critical determinant of industrial competitiveness. In an economy already grappling with inflationary pressures and global supply chain disruptions, an abrupt increase in electricity tariffs could exacerbate existing economic challenges. “Energy is the lifeblood of the manufacturing sector,” said a prominent economist. “Any significant increase in electricity costs is bound to ripple through the economy, affecting not just industrial production but also consumer spending and investment decisions.”

Moreover, the increased cost burden could lead to reduced foreign direct investment (FDI). Investors typically assess electricity costs as a key factor when evaluating potential locations for new investments. With energy prices set to rise by as much as 30%, Kenya risks becoming a less attractive destination for capital-intensive industries, potentially slowing down the country’s industrialization drive.

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Historical Context and Policy Lessons

The current situation can be viewed in the broader context of Kenya’s ongoing efforts to reform its energy sector. Over the past decade, Kenya Power has undergone numerous tariff adjustments in response to fluctuating generation costs, fuel prices, and infrastructural investments. Historically, tariff hikes have been met with mixed reactions. While they are sometimes necessary to fund critical investments, they also tend to spark public outcry—especially when consumers are already facing high living costs.

For instance, during previous tariff increases, there were significant protests and political debates over the affordability of electricity. These episodes underscored the delicate balance that regulators and policymakers must strike between ensuring the financial viability of utilities and protecting consumers from excessive price hikes. The current warning from Kenya Power comes at a time when the utility’s financial health is precarious, and any further burden could jeopardize its ability to expand and modernise its network.

Policy lessons from past experiences suggest that transparent communication, phased implementation, and targeted subsidies for vulnerable consumers can help mitigate the negative impact of tariff increases. In this context, Kenya Power and EPRA are under pressure to design a tariff adjustment mechanism that not only recovers the additional costs imposed by wayleave charges but also safeguards the interests of both consumers and industries.

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Future Outlook: Navigating the Energy Crisis

Looking ahead, the energy sector in Kenya faces a crossroads. On one hand, the utility must secure additional revenues to cover rising operational costs and invest in critical infrastructure. On the other hand, there is a pressing need to maintain affordability and ensure that electricity remains a competitive input for economic growth. The outcome of the current tariff review could set a precedent for future pricing policies and shape the trajectory of Kenya’s industrial development.

Experts suggest that a multi-pronged strategy is essential to address these challenges. This includes improving billing efficiency, strengthening debt collection mechanisms, and exploring innovative financing options for network expansion. Additionally, there is a growing call for greater intergovernmental coordination to resolve disputes over wayleave charges before they become embedded in the tariff structure.

Some industry stakeholders advocate for a more collaborative approach between Kenya Power, county governments, and national regulators. By working together, these entities can develop a framework that fairly allocates the costs of infrastructure maintenance while minimizing the financial impact on end-users. “It is crucial that all parties engage in constructive dialogue,” said an energy policy expert. “Without collaboration, we risk a scenario where the burden of higher costs stifles industrial growth and undermines consumer confidence.”

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Potential Mitigation Measures

In response to the looming tariff hike, Kenya Power is also exploring several mitigation measures to cushion the impact on industries and households. These include:

1. Enhanced Digital Billing and Payment Systems:
   Expanding the use of online platforms to reduce billing errors and improve payment compliance could help lower customer arrears and improve cash flow.
2. Targeted Subsidies:
   The government could consider providing subsidies or rebates to vulnerable consumer groups and small industries that are most affected by the tariff increases, thereby cushioning the blow of higher energy costs.
3. Phased Tariff Implementation:
   A gradual implementation of the tariff increase could allow industries and consumers time to adjust, reducing the risk of sudden economic shocks.
4. Incentives for Energy Efficiency:
   Encouraging businesses to invest in energy-efficient technologies may help offset higher electricity costs. Energy audits and incentives for retrofitting existing equipment could play a role in this regard.
5. Public-Private Partnerships for Infrastructure Investment:
   By leveraging partnerships with the private sector, Kenya Power could secure additional funding for network expansion and maintenance without relying solely on tariff increases.

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Conclusion

Kenya Power’s warning of a potential 30% increase in electricity prices is a stark reminder of the complex interplay between regulatory policy, infrastructure costs, and economic growth. Faced with mounting wayleave charges and a rapidly growing customer debt, the state-owned utility is under immense pressure to balance its financial sustainability with the need to keep electricity affordable for consumers and competitive for industries.

As Kenya navigates this critical juncture, the outcome of the tariff review will have profound implications for the country’s industrial competitiveness and economic stability. With manufacturing costs set to rise and consumer prices likely to follow suit, the broader economy could experience a slowdown if appropriate mitigating measures are not implemented.

Stakeholders across the board—from industry experts and government officials to consumer advocacy groups—are calling for a collaborative and measured approach. Transparent regulatory processes, phased implementation of tariff adjustments, and targeted support for vulnerable sectors will be essential in ensuring that Kenya’s energy sector remains robust and capable of supporting long-term economic growth.

Ultimately, the challenge for Kenya Power and its regulators is to manage the dual imperatives of infrastructure investment and consumer protection. The decisions made in the coming months will not only shape the future of electricity pricing but also determine the competitive landscape of Kenya’s economy for years to come. With a careful balance of fiscal discipline, regulatory reform, and innovative mitigation strategies, there is hope that the country can navigate these turbulent waters and emerge with a more resilient, efficient, and equitable energy sector.

In the end, while the prospect of a 30% increase in electricity prices presents a daunting challenge, it also serves as a catalyst for critical policy reforms. By addressing these financial pressures head-on and fostering a collaborative approach among all stakeholders, Kenya can turn this crisis into an opportunity—one that paves the way for a more sustainable and prosperous future.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

5th March, 2025